UPDATE 1.15pm: Shares in VDM Group have been punished after the embattled mining and infrastructure contractor revealed it had been forced to make 40 staff redundant and expected to post a first-half loss of between $7 million and $9 million.
The company warned it would take a hit on the outcome of disputed contract claims and variations that had not been resolved as it had expected.
VDM also said it had been forced to raise provisions for unrecoverable amounts on engineering and property development activities.
"Some of these issues remain in dispute, and may yet be resolved in the company's favour," VDM said in a statement.
VDM also said it had been affected by accommodation shortages on a site where two projects were being constructed in WA, resulting in a reduction in the scope on one, and limitations in on-site labour on the other.
"Key to the final results will be the resolution of current variations and claims on both current and recently completed projects, and the recovery of long standing debtors that will have a significant bearing on the quantum of the first half loss," the company said.
VDM also issued a bearish outlook for its project pipeline, blaming a slowdown in the resource sector.
"The current market volatility in the resource sector is expected to result in a reduction in the volume of new construction work available and that the company expected to be awarded, particularly in WA," VDM said.
"Given the reduced volume of new work and the forecast operating loss, the company will be required to review the carrying value of certain assets during the first half.
"This may lead to an impairment of goodwill and a reduction in the carrying value of deferred tax, which have not been included in the earnings guidance.
"Any writedowns of these carrying values will not affect the company's cash position."
VDM said it maintained low debt levels of less than $2 million and had $20 million cash in hand at the end of September.
VDM managing director Andrew Broad said the board and management team was extremely disappointed in the company's inability to produce a profitable first half.
He said a critical review of the entire cost base across the company had been undertaken.
"It is with regret that this has resulted in over 40 employees being made redundant in the past week," he said.
The redundancies will save VDM approximately $5.5 million on an annualised basis, for a one-off cost of $1.2 million.
"Maintaining a competitive cost base is paramount in the industry in which we operate and these cost management decisions have not been taken lightly, but have been required in the best interests VDM's shareholders," Mr Broad said.
"Activities associated with ongoing improvements to how we estimate projects at the time of tender and better delivery on projects will continue to progress despite the reduction in staff.
"We are seeing the benefits of these improvements internally but their impact on the financial performance of the business is taking longer to achieve than originally anticipated than when the turnaround process commenced."
Last year, VDM was forced into an emergency capital raising and asset sales to save it from the brink of collapse.
The company posted a full-year loss of $54.8 million for 2011-12.
Shares in VDM slumped 0.8 cents, or 32 per cent, to close at 1.7 cents after emerging from a trading halt this morning.